My Online Store: How Much Will It Cost Me?

Building an online store is one of the less risky ventures in terms of startup capital required to make it operate. Most of what you need to become successful involves time and patience. Especially if you're not planning to buy a bunch of inventory and warehouse it to begin with, you can become profitable building an online store within a matter of months, maybe even less. However, there are some costs involved. Here's what to expect.

Domain Registration - $8/year
Registering a domain costs next to nothing. I register my domains with NetFirms.com. They are the cheapest I've seen. Yes, you could register your domain with GoDaddy, but then you'd be putting money into the pocket of one of the biggest perverts (Bob Parsons, who owns GoDaddy) on the planet. If you have any sense of morality, use NetFirms instead.

Web Hosting - $8/month - $200/month
The reason there is such a wide range here is because there are greatly varying levels of hosting available. For $8/month, you can get an account on a shared server, which means that your website shares resources with likely hundreds of other websites, any and all of which could (and likely will) affect the accessibility of your website. If you're just starting out and on a limited budget, shared hosting is not a bad way to go. However, if you want something much more reliable, you can get a dedicated server, which gives you much more flexibility. A dedicated server (with a dedicated IP address for your store) will cost you close to $200 per month.

Merchant Account - $25/month
Merchant accounts typically charge a monthly fee for their services. I set up my merchant account with Elavon, who has a partnership with Costco. Since I have an Executive Membership with Costco, the monthly fee is waived. I've heard that Sam's has a similar deal for merchant account services, and there are likely other ways to set up a merchant account without incurring a monthly fee.

In addition to the monthly fee charged by merchant accounts, there is also normally a per transaction fee, which is usually in the neighborhood of 25 cents per transaction. If you are incurring transaction fees, it's a good sign for your business because it means you're making sales.

Payment Gateway - $99 setup + $20/month monthly gateway fee
I use Authorize.net for my payment gateway. Their fees are pretty standard, $99 to set up your gateway and $17.95 per month to use your gateway. There is also a $0.10 charge for each transaction you put through your gateway. The good news is that the $17.95 per month gateway fee is waived if you have enough transactions (180) in any given month.

SSL Certificate - $75/year
You'll need an SSL certificate to secure your site and protect your customers' data. I bought my latest SSL certificate through Register.com, and it cost me $54 for two years because I found a coupon. The reason I put $75.00 as the cost of an SSL certificate per year is that number is pretty standard for SSL certificates. There are varying grades of SSL certificates, but you can get by just fine with the cheapest one. The more expensive ones ($200 - $1000 per year) from Thawte or VeriSign are usually used by larger corporations. From my experience, there's not a legitimate reason to spend any more than you have to for an SSL certificate.

There are obviously other costs to anticipate such as telephone, internet access, and other costs, many of which you would probably be facing through your normal lifestyle anyway. A good first goal in the development of your online business should be to hit the break even point where the margin you make on your sales exceed your monthly expenses. As you can see, it shouldn't take many sales in a month period to become profitable. There's a surge of morale that comes with knowing that your new business is profitable.

A Quick Overview of How to Establish an Online Store

I began building a new online store while I've been documenting how I built my online sporting goods business. I set up ProHealthcareProducts.com about three weeks ago. I found a supplier who would drop-ship medical products for me, and I've added (so far) 700 of their products to my store. In contrast to my first venture, RandomDeals.cc, it took me less than two weeks after I began building the store to get my first order. I installed a Zen Cart store and shopping cart system, and then began adding products to it on September 9th. My plan was to start getting orders by the middle of October. My three-month goal is to build the site up to the point where it makes $5,000 during the month of December. It was a pleasant surprise to start getting orders before the end of September.

I'm saying these things not to boast, but instead to relay some information to my blog readers about what I did to get my new online store operating and producing sales so quickly. You might evaluate your strategy and gain some insight from what I did.

I originally started my new online store using Magento, but I quickly found that it was a bit more complicated than what I needed. The deal breaker for Magento was that it was just too slow for me, even though my site runs on a high performance dedicated web server that I administrate. It took too long to add products to my store. When you're planning to add thousands of products to a new store, every second makes a difference. Besides the administration part of Magento, there was even a visible difference in the storefront section of my site. I decided to go back to my old standby, Zen Cart.

Here's a strategy that includes what I've done so far on my medical products store, along with what I intend to do to reach my December goal for profit.

• Determine which products you want to sell, and find a supplier or suppliers who will drop-ship for you. If you are planning to keep an inventory of products, the drop-ship aspect of the equation can be omitted.
  
• Set up a web hosting account for your site. I host mine with HostGator. They've proven to be pretty reliable, and their hosting plans are competitive.
  
• Set up a shopping cart system for your new website. I use Zen Cart. I've tried others, including osCommerce, Magento, and VirtueMart (for Joomla), and I think Zen Cart is the best free shopping cart system available.
• Start adding products to your store.
• Customize your shopping cart system so that it looks like something customers would be willing to buy from.
• Regularly submit products feeds from your store to Google Base. I've been adding about 30-50 products to my store each day, so I submit a new feed to Google's product search at the end of each. Zen Cart has a nice add-on that can be installed to facilitate the creation of a product feed for your store with the click of a button. Any shopping cart worth using nowadays should have the ability to create a Google products feed automatically.
  
• Submit a new sitemap through your Google Webmasters account after making updates to your site, whether the updates include adding new products or creating new pages. Especially for new websites, getting your sitemap to Google is a good way to get indexed more quickly than you would otherwise. Again, Zen Cart has a good add-on that can be installed and used to create sitemaps.
  
• Start getting links to your site. There are lots of different methods for doing this. Getting links from a good variety of solid websites is crucial for your new store. I'll be writing more blog entries with some ideas on what I've done to get links. For the intent of this entry, I'll just list a few ideas for getting some quick links: 1) Start off by asking friends or colleagues who have websites to post links to sites they maintain; 2) Write some articles related to your new online store, and submit the articles publishers such as ezinearticles.com; 3) Contribute to online forums or the comments sections of blogs, and include your website's link with your comments; just remember not to act like a spammer by making sure you are actually contributing to the website on which you're commenting; 4) Submit your online store to local business directories and other directories for which your site is relevant.
• Merchant account and payment gateway.
  All the while you're making consistent efforts to build up your store's product offering, increase your site's reputation with the search engines and establish some traffic to your site, there are some administrative things you'll need to do, including setting up a merchant account and a payment gateway. I use Elavon for my merchant account, because they have the best discount rate I've found. The most widely used payment gateway (which provides an interface between your merchant account and your website) is Authorize.net. I've used them for years, and I've found no reason to shop for a different gateway account.
• You'll need to secure your website so that customer's can place an order on your website without having their credit card information intercepted by one of the many hackers out there. Setting up an SSL certificate can be kind of tricky, but your web host should be able to help. In the past I've had the HostGator support people install my SSL certificates for me until recently just because it was convenient. Recently I've figured out how to do it myself, so I install my own now.

All of the bulleted items mentioned above may sound like a lot of work. In reality it does take some effort to accomplish all of this. However, I hope I've provided you with a sufficient checklist so that you can at least gauge what you need to do to get your online store to the point where you can start having sales come in and your business will be profitable.

Two Approaches for Adding Products to Your Online Store

As I built RobbinsSports.com and consulted with other online store owners, I noticed two distinct schools of thought with regard to how store owners approach adding "inventory" to their online stores. The first approach (I call it the megastore) is to focus on adding as many products as you can from as many suppliers as you can find. The second approach (I call it niche domination) involves adding enough products to your store to have a legitimate selection of inventory, then focusing on getting rankings for the terms related to what's in your store. I'll explain more about these two schools of thought.

The Megastore Approach
During the second year of operating my online business, I was approached by a manufacturers representative for one of the companies whose products we were carrying. Manufacturers reps typically market many different companies in the same product niche. This is especially true in the sporting goods industry. The rep stopped by our home office as part of his regular visit schedule to his clients. He asked me if we'd be interested in carrying any of the other lines he represented, and I told him we would be glad to try them out. One of the suppliers manufactured sports uniforms. We quickly set up an account and began listing their products on our website.

It wasn't long (within one week) before we started getting orders for the new products we added to our site. Especially because our online business was somewhat established, Google and the other search engines picked up our new products quickly. We were obviously happy with the growth, and it gave me an idea.

At the time, we had about 2,500 products listed for sale on our website, and we were on pace to make about $75,000 - $90,000 in profit for the year. My reasoning was this: if we double the number of products in our database, wouldn't that effectively double the amount of profit we make? Well, we tried it, and it did. We added more than 2,500 new products to our online store over the next year and a half, and we saw our profit totals double proportionally.

The Niche Domination Approach
With more than 5,000 products listed on my online store, I had a much larger inventory than any of my brothers'. They chose an alternative approach to growing their businesses. My brother who owns OuterSports.com instead focused on owning search terms related to thermal underwear. Instead of adding more and more products to his site, he focused his attention on getting the links he needed to rank his site for that term and for similar terms. The decision to go that route probably came packaged with his decision to carry a significant inventory of the products he was selling. It makes sense that if you have thousands of dollars invested in products, you want to have those products moved as quickly as possible, so you make that your focus. If all your inventory is on the shelf of one of your suppliers, you're not so concerned about which products you sell.

The niche domination approach has worked well for those I've seen use it. Obviously there is a spectrum involved when you talk about either of these approaches. Most retail stores are somewhere in the middle of, on one end, having one product on a website while dominating the search engines for several terms used to find that product; and, on the other end, having thousands of products in their store, but no major keyword phrase for which their store ranks well. When considering where that spectrum you want your business to fall, you'll be constrained by the market conditions and competitiveness of the products you want to sell, your access to good suppliers, and other factors that may push you to one side or the other.

Comparing the Two Approaches
There are some benefits and drawbacks to both of these approaches. With the megastore approach, consider that each product you add to your store complicates your operation by some amount. For example, you really should have some knowledge about how your products work. Each product you add to your site broadens what is required of you and whoever you might hire to take customer calls. Also, as your list of suppliers grows, there is more complication in your entire fulfillment process. Our list had grown to over 30 suppliers, and it was often a chore to teach new employees how to handle placing orders with each of the suppliers.

A benefit to the megastore approach is that you are typically very well diversified. Sometimes Google tends to do strange and unanticipated things, which means that if you are banking on being at the top for a particular keyword phrase, and you're suddenly dropped, it could drastically reduce your sales. My brother experienced that after he'd purchased a significant inventory of thermal underwear. He had been #1 in the search results for that term all summer long. When the cold season hit, his site was dropped far down the search list, and he took a hit since he wasn't able to sell his inventory.

Evaluating the seach market scenario for the products you're selling and understanding what you'll need to do to capture a popular search term versus smaller long tail search terms will allow you to set up a plan to optimize your efforts.

What to Look for in Product Suppliers

A lot of people who are new to building online stores experience difficulty finding suppliers for the products they want to sell. For that reason, many would-be internet entrepreneurs tend to settle for using suppliers who aren't very easy to work with. For instance, I have found suppliers who add unreasonable drop-ship fees, who place restrictions on ordering terms (such as requiring that your first few orders be shipped directly to your main office instead of to your customers), and who generally make it apparent that, although you can ultimately sell their products, they're not interested in making it simple for you to sell their products without buying a large inventory. On the other hand, I have also found suppliers who have online ordering systems, complete with the ability to have orders shipped directly to customers. Most of the time, those kinds of suppliers are familiar with what's happening in the online retail industry, and they are very interested in having their product line in whatever stores (brick and mortar or internet-based) they can.

So what should you look for in a supplier to make your relationship work? First of all, you should find out whether the supplier charges a drop-ship fee to ship individual orders to your customers. If they do charge a drop-ship fee, how much is it? A supplier's policy of charging a reasonable drop-ship fee is not a deal-breaker, but it does say something about their attitude towards your business setup. It also determines whether it's practical for you to spend your time and energy promoting their products. If you are selling items for which your average profit margin on a single order is $10 and your supplier is charging you an eight-dollar drop-ship fee, it's not worth your time to even list that supplier's products on your site. If you are selling items that typically net $50 to $100 in profit per order, you can live with a $5.00 handling charge.

Here are some things to look for when searching for suppliers for your new online store:

• Profit margin: The best way to get higher profit margin products is purchasing direct from the manufacturer. Nobody (in most cases) sells a finished product for a cheaper price than the actual manufacturer. If you can get a useful drop-ship account with the manufacturer of a product, then you can be assured that the pricing you get is at least somewhat comparable to that of your competitors.
  Manufacturers typically distribute their products through distributors. Distributors are typically set up better than manufacturers (who tend to always sell their product in bulk to distributors) to do fulfillment one a per order basis, drop-shipping directly to your customers. If you want to find a distributor, you can normally contact a manufacturer and ask them who distributes their products.
  Often you'll find distributors that resale products made by other companies in addition to ones they've manufactured themselves. In all cases such as these, I have found that it is a lot easier to make decent profit margins on the items that a particular distributor manufactures rather than on item that it resells. This makes sense, since a distributor has to add its markup onto products it doesn't manufacture.
• Ease of Ordering/Tracking: Our suppliers' ordering structures include the following:
  
  1. Easy online ordering systems that allowed us to login to our account and easily place orders.
     
  2. Emailing order information to the supplier.
  3. Faxing order information to the supplier.
  4. Calling a supplier to place an order.
  
  
  These ordering methods are listed in order of convenience. The order also represents how much the suppliers focus on using modern technology for convenience. It's strange that even in the 21st century there are companies who don't use information technology to facilitate order placement and tracking, but that's the case many times.
  Most large clothing distributors give access for their customers to online ordering, tracking, and other pertinent information. Your customers will want tracking information, expedited shipping, and other perks. Unless you're shipping products from your own warehouse, you're limited in being able to meet your customers' needs by the customer service your suppliers provide to you.
  
• Return Policies: Returns are one of the worst parts of selling products online, but they are almost inevitable in most businesses. Selling digital products (downloads) is one of the only ways to avoid returns. Something you need to consider is your return policy and whether it will be supported by your supplier. Sometimes you can end up with a bunch of stuff you'll never be able to resell (like 3XL gold jackets), and you have to take a loss on it or find some other use for it if your supplier makes it difficult or impossible to return it to them.

Taking the time to apply these and other tests to sort out which suppliers you will use and which you will bypass will save you a lot of time. We occasionally found ourselves canceling accounts with suppliers and removing their products from our site after having spent hours and hours adding their products to our catalog. For those cases, it would have been nice to have sorted out those suppliers from the beginning.

Our Process for Finding Products to Sell

After my wife and I settled on sporting goods and team sports equipment for our new online store, we scheduled a few meetings at the white board in a spare room we had in our $460/month apartment. We brainstormed what products we wanted to sell: football, baseball, basketball, volleyball, (our four most favorite sports), soccer, tennis, and a few others. We tried to brainstorm as best we could what selection of products we would sell. We drew up how the categories would be laid out. We tried to anticipate the ordering patterns our customers would have. For instance, would there be a good percentage of customers who would combine in their orders products from different suppliers of ours who were spread across the country? If so, we were bound to lose money on shipping costs, since our shopping cart (osCommerce) would only allow us to input one zip code indicating the location from which our products shipped. What if many of those customers ordered expedited shipping from two different warehouses and our site only calculated it as coming from one location? Then we'd really lose money on the order.

Despite those concerns, we moved forward looking for suppliers to fill our virtual warehouse. While we're on the topic, that does bring up a point. Over the course of our owning the business, we were able to find many suppliers who would drop-ship their products to our customers. Some of the suppliers were smaller sports clothing manufacturers who carried an assortment as small as around fifty different styles. Others that we found and used held millions of dollars worth various sports related products in their warehouses. Each end of that spectrum has its advantages, but if you can find a good solid supplier with a wide selection of the type of products you want to sell, that will get you off to a good start.

Our strategy for finding companies that we could partner with initially focused on finding an association that covered sports equipment. We quickly came across the National Sporting Goods Association (NSGA), and we signed up for a membership. Their directory had all the contacts we would ever need: manufacturers, distributors, sales representatives who covered multiple lines. Because we were members of the NSGA (which costs less than $100 per year), we had some credibility with suppliers we contacted.

Another resource we relied on was Dunn & Bradstreet (www.dnb.com). They have a handy tool that allows you to search for companies using keyword phrases to find what you need. I would typically do searches for terms such as "basketball distributor" or "sporting goods wholesale". You can search nationally or by limit the search to a particular state if you want to deal with someone locally.

Finding suppliers for the products you want to sell can be a stumbling block for someone who wants to break into the online retail world. Just like everything else I've emphasized, this process can take some time. You may have to be more patient than you anticipated, but if you're persistent and use some creativity, you'll find you've ultimately taken another big step forward in your quest to own a successful online business

uSight.com Scam

A few years ago I was taking an entrepreneur lecture series class at BYU. The class was held once a week. Local guests from successful (and sometimes "potentially" successful) companies were invited to come teach the eager young minds of Brigham Young University about achieving success in the secular world. On one particular day, we were blessed with the privilege of a condescension from Brandt Anderson, the founder of uSight and uSight.com. Brandt started his discussion by explaining how he'd risen to such great heights since his first entrepreneurial venture, which involved stenciling basketball court markings on the driveways of people in his neighborhood for something like $20 a piece. He mentioned that back in his stenciling days, he drove a beater Volkswagen Rabbit. At the conclusion of the lecture, a student (obviously impressed at Brandt Anderson's business success) asked him, "What kind of car do you drive now?" Brandt's answer, "Which day?" Wow! If there was a contest for business owners whose ego's kept pace with their earnings, I would have definitely entered this guy.

At least Brandt was a decent lecturer (smooth talking is a gift a lot of entrepreneurs have), and it seemed like he had some good ideas. At the time, I was just building my first online store, OuterSports.com. I figured it wouldn't hurt to ask Brandt some questions, so I got in line after the lecture. He told me to stop by his office where he'd metaphorically toss me some crumbs.

When I went down to the uSight office in Orem, Utah, I came in and introduced myself to Brandt, who sent me to see someone else in the office. At that time, OuterSports.com was hosted on a shared BizHosting.com server, and I was interested in finding out if I could build my own shopping cart setup using JSP and Servlets, and host it with uSight.com. A marketing guy at the company jumped the gun and told me they'd host it for free for me since I was one of Brandt's fellow "Zoobies" (BYU student). I was pretty excited about the prospect of using one of their servers and being given preferential treatment.

In the end, access to my own personal web server at uSight.com never became a reality. Either they never intended to make good on the favor they'd offered, or their tech guys decided it was an unreasonable request. During this process of trying to get my account set up on a uSight server, I was asked to do a testimonial for them. They took me to a photographer and asked me to make some favorable statements about them. The end result was my picture on the uSight.com customer testimonials page. I've since asked them to remove it, but apparently testimonials are hard to come by for uSight.com. They still have my picture and testimonial up there. I'm the goofy bald guy wearing the OuterSports.com shirt. The funny thing about it is that the testimonial is on a page entitled "Real Stories".

Here is what's real about uSight.com's story. They promise a lot, and they deliver next to nothing. From what I've observed of companies like uSight.com (see my Simplx.com article), they are intentionally set up that way. I don't know if Brandt Anderson ever intended to sell a legitimate product, but ultimately he persisted in peddling a product that was definitely not what he said it was, right up until the time he sold the company to an organization called National Marketing Resources.

Shortly after I gave my "Real Story" testimonial about uSight.com, the deal they promised me ended up being nothing more than hype. Over the next few months, I found out that I wasn't unique in experiencing a letdown after getting involved with uSight. At least mine didn't cost me any money.

At least a few times each week I got calls from uSight.com customers who either claimed that they were afraid they had been scammed by uSight, they were considering using uSight's services and were nervous that the deal was too good to be true, or they were frustrated about not getting what uSight promised them. Many of uSight.com's customers who were still in the denial stage about what they had just purchased contacted me to find out how I managed to have such a different experience (judging from my testimonial) than they had had. These people had seen my company listed on uSight's "Real Stories" page, and they called the OuterSports.com customer service line to get some answers on how to get uSight to live up to the promises that had been sold. There were a few times I tried to use uSight's toll free number and their direct line to contact one of the guys I'd worked with while doing the testimonial. I never once was able to get a person to answer the phone. Instead, I was routed to a few different departments until I was tired of waiting for someone to answer. For me it wasn't a big deal, because I had the guy's cell phone number available. However, for someone who paid thousands of dollars to have access to a "coach" supposedly available at the other end of the line, the lack of availability much have been frustrating to say the least. I apologize to anyone who based any part of their decision to get tangled up with uSight.om on my goofy picture and concocted praise of the company.

Among the calls I received because my testimonial appeared on uSight's website was one from the Utah Division of Consumer Protection, who'd received so many complaints about the company that they were doing an investigation. The person who called asked me whether I knew that my picture was on uSight's website as part of a testimonial. I explained how that happened, telling them that after I did the testimonial, I never even got to the point where I used their service because they had backed out of what they originally offered.

My advice to anyone else who may be considering using uSight.com is to find a different source for your drop-shipping needs, your shopping cart and hosting, and whatever coaching you will need to help you market your site. There are sources available that are much more cost efficient, including manufacturers who'd be glad to have you help them turn over their inventory, free shopping carts like Zen Cart and Magento, decent hosting plans for as little as $5.00 per month, and a world of free information about promoting your site using search engine optimization and other marketing strategies.

One last interesting note about uSight.com: It looks like they do know a little something about manipulating search results. While I was writing this article, I googled 'usight', and I came up with some pages they've put out on the web to try to squeeze the negative search results off the first page of the search engines. For instance, here is an About Us page that showed up #16 on my Google search: http://usight-hosting.com/about-usight.html . You'll notice that this page includes the terms scams, frauds, fakes, and rip-offs. Those links point right back to the page they appear on. This technique is a well-know search optimization strategy to make that page show up high in the search engines for those keyword terms. The hope by uSight is that if someone does a search for "usight scam" or "usight fraud", uSight's "About Us" page and other planted pages will show up at the top of the search results, making is so that people who attend their seminars don't see the negative commentaries about them. Here is a list of pages uSight has created specifically to push negative reviews down the list of search results.

usight-hosting.com/usight-fraud-rip-off-scam-fake.html
www.usight-design-templates.com/usight-fraud-rip-off-scam-fake.html
www.usight-ecommerce.com/about-usight.html
ubuilder-design.com/about-usight.html
usight-merchant-account.com/usight-fraud-rip-off-scam-fake.html
www.usight-marketing.com/privacy-policy.html
www.usight-business-solutions.com/10reasons.html
ubuilder-software.com/about-usight.html

If you'd rather have this post show up at the top of a Google search for any of those search terms, feel free to add a link from your website to this post, and include something like this for the HTML code to create the link: <a href="http://ecommercesuccessstory.blogspot.com/2009/09/usightcom-scam.html">usight scam</a>. As I discuss in my posts on search engine optimization, linking to this post using those keywords as the anchor text will cause this post to rise to the top of Google when someone does a search for that term.

Simplx .com

I wrote a post recently regarding finding products to sell in your online store. In that discussion, I explained why trying to find products to sell through drop-ship membership programs is a bad idea. Thanks to Simplx.com for providing an illustration of what I mean.

Simplx.com is one of a few different aliases used by a group of people who typically market to people with "pie-in-the-sky" dreams of becoming wealthy overnight. They've used other names and websites, including:

www.simplicitygroup.com
www.simplediscounts.com
www.mallshare.com
www.simplerebates.com
www.irebates.net

Companies like this get leads (typically from seminars or opt-in lists) for people who are eagerly waiting for their chance at making quick windfall profits from the Internet. Customers are told how easy it is to make a fortune with no prior knowledge of Internet marketing, website design, SEO, etc. In fact, the names Simplx.com and "The Simplicity Group" make ecommerce success seem just so, well...simple. Sounds perfect, doesn't it?

The salesmen for these kinds of companies are like hungry sharks determined to extract a credit card from the voice on the other end of the line at all costs. Years ago I applied for a job with one of these types of companies before I knew anything about their tactics. I was told that getting hired there was a tough sell itself, because the leads were valuable commodities, and they didn't want me wasting any. The owners of the company asked me to listen in on a few sales calls to see if I thought I was cut out for what they were doing. I listened in as a "setter" called on some leads to prep them for a more experienced "closer" sales guy. Later, I listened to the closer act like he had the potential customer's best interests at heart, like he was best buddies with the person on the other end of the line. After he found out the customer wasn't qualified at the time because she didn't have enough credit available on a combination of her credit cards (Yes, they graciously allowed customers to spread the fee, which was thousands of dollars, across more than one credit card), he abruptly ended the call and spouted off some vulgar, expletive-laced insults about the person.

While I was listening in on this guy's calls, I overheard one of their top salesman behind us (who boasted over $10,000 in sales commissions from the week before, most of which probably went into buying accessories for his truck, gel and dye for his hair, and tanning supplies) cheerfully extracting over $3,000 from an older fellow who apparently didn't have enough savings to retire. He was looking for a way to quickly fill his retirement coffers with some quick cash. The poor guy thought he'd found a rare opportunity at a financial second chance. Instead he was simply donating to some punk kid's leisure fund. I wish I would have taken the phone from the sales rep to tell the guy to run while he still had an intact credit card. At least I ran from that job opportunity without wasting too much time.

It's only after a victim of one of these companies has forked over hundreds or thousands of dollars that the honeymoon soon ends and reality sets in. The customer realizes that making money online isn't so easy. It doesn't come without effort. Worst of all, this new partnership the victim has forged is all give and no take. The promised one-on-one coaching and expert advice turn out to be a phone number that's rarely answered. When someone does pick up, the "expert" voice on the other end is reciting general marketing techniques he's never used from a script that was probably written years ago by other people who never used the techniques either. Otherwise, they'd be employing those techniques instead of trying to sell their schemes. All this wonderful help and advice can be accessed for a low cost of hundreds of dollars at a minimum. Most likely you'll be out thousands of dollars along with the time you spend trying to get your money back.

If you're ever tempted to get in on this kind of "opportunity", don't be fooled. Take that energy and zeal you have for building your online empire, and expend it learning and implementing the principles that make up the legitimate (albeit longer and more painstaking) road to a successful career online.

For those who have had the misfortune of getting tangled in one of the nets I just described, feel free to post your experience here. Your experiences will be most helpful if you include the facts about what you experienced, including what was promised to you versus what was delivered.

Addendum to this post - October 13, 2009:
I was contacted by one of the owners of Simplx regarding this post. He was obviously upset about what I wrote, and I agreed to meet with him so that he could review with me the Simplx model for selling products on eBay and ecommerce stores. After the hour and a half meeting that involved each of us presenting our side of the Simplx business model, I told him I would edit this post to give more of his perspective. Despite the many online postings about Simplx being a scam, he seemed sincere enough in telling me that his product works for some people. With that said, a general principle to follow when contacting or being contacted by any kind of drop-ship membership company is to consider what's being offered by them, and think it through before making a decision. As for the Simplx model, I still have a hard time believing it's a good route for anyone who can set up an account with a distributor or manufacturer directly. However, I've removed it from my "Drop-shipping Scams" category.

Avoiding Drop-shipping Scams

There are lots of companies out there waiting for you to fall into their too-good-to-be-true traps. I have personal experience with the owners of two of these kinds of companies based right here in Utah - USight and Simplx. These companies tout their desire to make you a millionaire overnight by giving you access to thousands of high-margin products which you can sell online. To make themselves seem viable, they'll also include "coaching" from a person who really has never tried their methods in the first place. Otherwise, he'd be building his own business using those strategies instead of trying to sell them to you. A quick logic check would clue most people in to the fact that these companies aren't even worth the time you'd waste trying to determine whether they're legitimate, let alone the thousands of dollars you'd be out if you get involved with them. Think about it, if they're selling the same lists to thousands of people, who are in turn trying to sell the same products on eBay, the prices are driven down and the competition so fierce that there is no way for anyone to make money. Don't let it happen to you. I can't emphasize enough that you shouldn't go down the road of buckling to the high-pressure sales schemes of those snakes. If you do, I guarantee you'll be setback a few thousand dollars, and you'll likely be cured of any desire to try building an online store again.

Sporting Goods

After a couple months of toying with the idea of selling trains sets online, we decided it wasn't the best option for us. As we brainstormed about what else we could try, we quickly settled on team sports apparel and equipment. My wife and I both love sports. I wrestled and played varsity football and baseball in high school. I also love to play basketball, volleyball, and other competitive sports. My wife is the same way. We figured that we couldn't go wrong selling the kinds of products we used.

The next step in the process was to determine exactly what products we would sell. That decision would be contingent on a few things. First, because we didn't want to carry an inventory, we needed to find companies who would drop-ship their products for us. We wanted to sell to customers directly, many of whom would likely only buy one or two of any particular item. This meant that our suppliers needed to have low minimum order requirements.

The next priority was to find products that had a decent markup. Especially when you consider all the fees associated with completing the sell of an item - credit card processing fees (about 3% of the total), drop-shipping fees (as high as $8.00 per shipment for some of our suppliers), etc. - you want to make it worthwhile for you to sell what you're selling. Most items on which there isn't at least a legitimate 30% margin are just not worth selling.

Here are some suggestions. Most kinds of clothing have 100% markups from wholesale price to MSRP (Manufacturers Suggested Retail Price). Lots of niche products or somewhat custom items have high margins. Consider what you'll sell carefully before you put all the time into building a website, marketing it, and ultimately finding that the profit you're making (or not making) just isn't worth the time and effort you're investing.

Selling Model Trains Online

Being ditched by my brother after spending almost two years working on what was supposed to be a joint deal took me back to ground zero. Besides being cut out of a business that had significant potential, I was left with no website, no established link network or traffic avenues. I didn't want to start a business that would directly compete with my brother's, so I didn't even have a product to sell at that point.

The next step was for me to figure out what I wanted to sell. Making a decision regarding what you're going to sell online is a major step when creating a successful ecommerce business. It's like walking down a road and coming to a place with a thousand different forks. Your decision regarding what product you are going to sell will have obvious impact on your business for years to come. You can read my article about what factors to consider when you're ready to seriously make that decision. Simply put, it's best to anticipate as best you can your sales process and focus on something that will be as simple and profitable as possible. It also helps if you sell something you enjoy.

Soon after my split from OuterSports.com, my wife got a job at a business that sold electronics and other toys online. She was impressed with the growth the company had experienced over the previous few years with their business. Partly because of her experience at work, our discussion about what we should sell online tended to focus on finding a niche that we could potentially dominate. My wife's grandfather was a model train enthusiast. On our most recent visit to his home in Texas, he showed us his elaborate train setup. With the influence from my wife's grandpa and her job, we made a decision to begin selling model train sets and later add other related products.

We got some literature on model trains so we could learn what we needed to sell model trains confidently and provide quality customer support. We learned about O-Scale, S-Scale, and HO-Scale trains. We studied some of the various aspects of what's involved in setting up train tracks, train stations, and accessories. We bought a domain, BigKidsPlayground.com, and we started to build our site.

As we began building a network of suppliers for model train sets, it soon became apparent to us that an online store selling model trains and accessories could quickly become more than we wanted to handle. The wholesale accounts we set up provided us with price lists that didn't show a very impressive margin on most of their products. We thought about the difficulties that could arise with customers buying trains and having difficulty with them not working for one reason or another. Electronics are often volatile products, and the nature of the detail with model trains, tracks, and scenery gives them a higher level of potential problems.

Despite the significant amount of time it took us to "settle" on the idea of selling model trains online, and the efforts we put into starting down that road, we backed out.

I tell this story because it illustrates what I mentioned about finding a product to sell that is relatively simple, and which a person can make a decent profit from. I'm definitely not saying that there's no way to make a profit selling model trains online. Had we continued down that road, we could likely have made it work. It's just that, using our best judgment and intuition, we figured our time would be better spent building a store that we estimated to have more potential.

Things to consider when starting an online store...

Things to consider when starting an online store...
I put together a list of things that you’ll need to consider when starting an online store. The items included in this list comprise a checklist of core essentials for building and marketing a successful online business. I am writing articles that will describe in more detail each of these issues. Also, my ebook will have specifics about what I did to handle these various aspects of my business. If you’d like to be notified when my ebook is published, please sign up for our mailing list.
• Finding a product to sell
• Finding distributors for the product you want to sell
• Purchasing a domain name
• Finding a solid web host
• Setting up an SSL certificate for secure online ordering
• Establishing a merchant account to accept credit cards
• Finding a shopping cart system and setting it up on your web host
• Customizing your shopping cart system
• Establishing policies for pricing, discounts, shipping, returns, etc.
• Marketing your website - getting targeted traffic

Evolution of OuterSports.com

Our decision to focus on selling outdoor products was based mostly on the fact that the supplier we had for those products was the largest and easiest to work with. If you go the route that we did and try to avoid having a significant inventory (which obviously increases your risk), your product selection will depend heavily on what suppliers you can find. I’ve found that there is a wide spectrum when it comes to the flexibility and cooperation of distributors, especially when it comes to small startup online stores. I’ll discuss in another section some things you can do to find the right suppliers for your online store. What you are looking for are suppliers who are willing to ship products directly to your customers each time you receive an order, and who don’t charge prohibitive fees to do so.
After we decided to focus our store on selling products for hiking, climbing, and camping, we knew we needed to find a new domain name, something that sounded like an outdoor store. We checked on the availability of a bunch of names using a domain registrar, but most of the names we wanted were taken. My brother came up with the name OuterSports.com. It was available and sounded good, so we took it.
We applied the experience we’d gained from RandomDeals.cc to building up OuterSports.com. Although we were more knowledgeable about how the process worked, we still didn’t have a lot of money to inject into the business, so we had to build it more slowly than we wanted to. However, as I discussed previously, we did see incremental improvements. At first we added about five hundred products to the store. Then we started getting links to our site by finding sites to exchange links with us, submitting our site details to online directories, commenting and contributing to forums and other community websites. Orders began to trickle in, and it wasn’t long before OuterSports.com had surpassed RandomDeals.cc.
About that time, I met a girl who I’d later marry. We dated for a few months until she went to France to study for a semester. While she was gone, I continued to build up OuterSports.com by adding products, getting links, and handling customer service issues (taking orders, charging customers, submitting orders to be processed, etc.).
In the spring of 2003, I received an entrepreneurial scholarship from Brigham Young University, where I was attending school. The scholarship was given to me for my work with OuterSports.com, and it required that I spend the summer working full-time on the business. I also had to submit formal reports to the scholarship office about what I was working on and detailing the success I was having. A couple months later, I got married and moved from Utah to Texas with my new wife so we could spend some time with her family before going back to school.
The scholarship I’d received validated my belief that the business my brother and I started had some serious potential. If experienced business people thought our small online store was worth giving a couple thousand dollars to a student, our business had to be worth something. The requirements for the scholarship motivated me to focus my efforts and move forward. Over the course of the summer, I took over handling the entire operation, and I was able to greatly improve our profits by continuing to market the site. In March of 2003 we were making about $2,000 per month, obviously not enough consider the store a career. During the month I returned back to Utah just before school, the site had made almost $4,000 in profit, and the signs showed that we had some serious momentum.
The plan that I’d discussed with my brother dictated that once the business was large enough to support him and his family, he would quit his job and work full-time on OuterSports.com. Then, as the business grew even more, I would finish school and devote my full attention to the business, and we’d build it together. Those plans abruptly changed when I returned to Utah after my scholarship summer in Texas. Just before school started, I received a phone call from my brother, who told me he and his wife had decided that they didn’t want to share a bank account or the business with me and my new wife. He simply asked me to move on and do something else.
As shocking as that turn of events was, I knew that I could start again with a new line of products, a new domain, and a new online store. Based upon my experience with the transition from RandomDeals.cc to OuterSports.com, I knew that building an online store wasn’t a one chance only situation. In fact, even after I split from OuterSports.com, I’ve seen three of my brothers build and successfully operate online stores selling products ranging from outdoor equipment to nursing scrubs to jewelry. Each of these stores has taken advantage of the formula my brother and I figured out when we began building RandomDeals.cc. If you have the patience and the willingness to invest time into following the same formula, I’m confident your successful online business is on the horizon.

Transitioning from Randomness

Our experiments with RandomDeals.cc showed that we were making a lot of mistakes in our approach to building a successful online store. On the other hand, the site served as a sort of prototype that showed us we at least had the potential to effectively sell things online.
We consulted with a lot of people about our business, getting feedback from friends, relatives, and others on the usefulness of the site. We asked for and received frank feedback about whether our site was one that looked trustable, whether the way we presented our products was appealing, and other aspects of the site. Much of the feedback centered on two things. We needed to have a more focused product offering, and our site needed to look more professional. RandomDeals.cc seemed to be more like a garage sale than a professional outlet for products being offered by experts in a particular industry. Besides the random mix of products on the site, the design of the website itself was pretty old school looking, appearing as if it were made by amateurs who were learning how to build an online store. In spite of those issues, we were still making a few hundred dollars each month. To take things to the next level, we needed to do some refining.

Learning the Important Lessons

My brother and I set up RandomDeals.cc in the early part of 2002. Both of us had some technical background, but our main asset was our willingness to learn the ropes of building and marketing an online store. Our limited understanding of search engine optimization was manifest in our approach to getting traffic to our site. Right away my brother paid a company over $100 to submit RandomDeals.cc to a bunch of links farms and other similar worthless (worse, they could have had a negative impact on our site) link farm sites. We quickly figured out that route was not the way to go. Although we both had full-time occupations, we planned to dedicate whatever time we could to learning what we needed to learn and quickly building up a new career for both of us.

Around that time, I saw a commercial that showed employees of an online store around an order counter that recorded orders being placed soon after the company unveiled their newly created web site. The group cheered as a few orders trickled in. Then, their jubilation suddenly turned into panic as they watched the order meter spinning out of control. They were receiving so many orders they didn't know how they would keep up with them. That was my plan. I figured we could throw together our own online store, put in a few hours of marketing, and the orders would come rolling in.

The expectation that I had regarding how easy it would be to get our website rolling in the dough was pie in the sky. Like many American entrepreneurs, I didn't understand how much work would be involved in building an online business from scratch. Every time we got a link from a website to ours or our website was added to an online directory, etc., we thought we'd see our orders skyrocket. That never happened. Unless you're funded with tons of cash and resources galore [in which case my scenario doesn't apply to you] to market your site, you're very unlikely to see your business achieve the instant success that so many new online store owners expect. Instead, it will happen slowly, after lots of steady, determined effort.

A Note About Patience and Persistence
Over the years since I helped launch my first online store, I have had opportunities to mentor many people who wanted to find the freedom they saw in my ability to run a significant business from a home office. Some of them have been successful. Sadly, many of those I've mentored have failed in their goal to change from their existing jobs to become Internet entrepreneurs. I've seen a common trend among those whose online businesses have fizzled. Typically we'll have an initial meeting where I explain the fundamentals of finding a product to sell, determining who will be suppliers, registering a domain, setting up a store, and ultimately marketing the new site. After the initial meeting, the aspiring entrepreneur is normally thrilled thinking about how he will be his own boss within the following few months. Like the twelve-year-old boy who buys himself a nice new basketball and some sneakers intent on becoming the next NBA star, many of those I've worked with buy a domain or two, set up their business entities, establish accounts with suppliers, and in the short term seem bound for success. When I follow up with them later, it's obvious that most of these folks simply didn't understand that achieving success with an online business just doesn't happen overnight, and it doesn't happen with a few hours of work. When you begin building your online store, you're much more likely to see incremental gains and marginal improvement than you are to see instant windfall profits. However, over time, if you are patient and persistent in your efforts, you will find that your consistency has paid off.

My brother and I could very well have become two more among the numbers of people who tried to start an online business, gave up, and continue to work a job that doesn't fulfill their interests. I remember him telling me several times, "This isn't working. Let's just see if we can sell this thing for a few thousand dollars and try something else." I'd remind him that whereas during the previous month we were getting 30 visitors to our site each day, during the current month we averaged more than fifty visitors on a daily basis. We'd also notice that instead of getting five or six orders in a week as we had just three months ago, we were getting ten or twelve orders per week.

Obviously, the speed at which your eCommerce store takes off will depend upon how much time you put into it and how intelligently you approach it. Some strategies for setting up and marketing websites will be better than others. I've seen Internet marketers use creative, non-spamming, effective techniques to drive traffic to their site, and I've seen others whose efforts were not so effective. Hopefully the information you find on this blog and in my ebook will help you develop a strategy for your site that will be as optimized as possible. Spending some time planning, organizing, and refining your strategy (in addition to doing the actual grunt work) should accelerate your results.

A Failed Automotive Shop

In 1999, I was working as an entry level software developer while going through college when I first decided it would be a good idea to go into business. My older brother and father were mechanics. At most of our family functions, it was common to hear them complain about their jobs. It wasn't that they didn't like the work they did. They just were fed up with their work environments and having to function under what they portrayed as incompetent management. Each complaint was followed with an insistence that if they had their own shop, things would be much different - much better.

After a few months of hearing their complaints, some of the others in the family (with my voice probably the loudest) suggested that they start their own business to remedy the situation. Although they were great mechanics, their business skills were lacking. My younger brother and I stepped in to provide what they lacked on the business side. We were determined to make it a successful family business, selling automotive repair and tires.

While I was working on our business plan and trying to secure financing for the business, I bought a house so I could put some sweat equity into it. My intent was to pull out the equity to help leverage our startup costs. I finished my basement and installed a sprinkler system in the yard. I pretty well exhaused the $10,000 or so in savings I had accumulated.

During this time, a period of about five months, I spent well over 100 hours doing market research, interviewing potential customers door-to-door, negotiating with the owner of the property we wanted to use, and wearing the numerous hats that come with starting a small business. The culmination of it all was at best disappointing. At worst, it set me back all the time I had put into building a business that never even got to the runway, and thousands of dollars in attorney's fees and other costs. My brother and father decided the business was "too risky" when the bank asked for collateral (i.e. - possibly our homes in the event the business failed) to secure a loan.

The whole experience wasn't a total loss. I had learned some things about business and negotiating. I understood how quickly money could evaporate. I still wanted to build a business, but I also knew that my risk level comfort zone then changed to being willing to put my time and effort on the line, but hopefully not so much my savings.

My younger brother still wanted to work together on a business with me. We thought about a few options. A friend of his had tipped him off about a distributor of outdoor supplies. They weren't interested in having us sell their stuff on eBay, but they would give us an account if we demonstrated that we had an online store. For a small fee ($2.00 per order), they would drop-ship their products to customers. We also found other suppliers whose products we could purchase and have shipped to our customers just in time, as we received orders, without having to stock a bunch of stuff that we weren't sure we could sell.

We set up a website: randomdeals.cc (randomdeals.com was taken). The name was accurate for our business. On the home page of the site there were four pictures in the main section: one for computer components, one for auto accessories, one for outdoor equipment, and one for sporting goods. Indeed, it was random. Here's the header for our RandomDeals.cc website. I found it using archive.org's WayBack tool.







The funny thing about our RandomDeals.cc site is that we actually sold some things on it. Apparently not everyone was turned off by our obvious lack of online sales experience. Although it wasn't much, it led to greater things for us in the eCommerce world.